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Raising a deposit still the biggest hurdle for first-time buyers

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18/01/2021
London is the most unaffordable region for those buying their first home, but where is it easiest to buy?
Raising a deposit still the biggest hurdle for first-time buyers

Raising a deposit is the biggest barrier for first time buyers, according to a study from Nationwide.

It said that high house prices relative to average earnings continue to make pulling together a deposit to put down on a property a significant hurdle for first time buyers.

At the end of 2020, the UK First Time Buyer house price to earnings ratio stood at 5.2, close to 2007’s record high of 5.4, and well above the long-term average of 3.7.

A buyer currently trying to save a 20% deposit would need to find the equivalent of 104% of their average annual income, for example.

But it’s not all bad news.

Low cost of borrowing

The monthly cost of servicing a mortgage is now close to historic average levels.

Despite house prices being high, low mortgage rates means that monthly mortgage repayments are manageable for many first-time buyers – if they can pull together the deposit to get the mortgage in the first place.

First-time buyer average mortgage payments are slightly below the long-term average, at 28% of take-home pay.

Affordability improved significantly between 2007 and 2009, due to the fall in house prices in the wake of the financial crisis, and remained low, thanks to the decline in borrowing costs to all-time lows.

Regional differences

London has been the least affordable region for most of the past 40 years – the house price to earnings ratio in the capital reached a record high in 2016 of 10.2 and remained elevated at 9.2 at the end of 2020.

Scotland currently has the lowest house price to earnings ratio at 3.2, closely followed by the North at 3.3.

Andrew Harvey, senior economist at Nationwide, said: “In recent years a significant proportion of first time buyers have been drawing on help from friends and family or an inheritance to help raise a deposit.

“In 2018/19, around 40% of first time buyers had some help raising a deposit, either in the form of a gift or loan from family or a friend or through inheritance. This is up from around a quarter in the mid-1990s.”

“The good news is that for those that are able to raise a deposit, the cost of the typical monthly mortgage payment relative to take-home pay has been trending down in recent years.”

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